Honors Econ notes Unit II Part A

* Profit Motive
* Why people engage in free enterprise (make $$)
* Open Opportunity
* anyone can compete/get in the game
* Economic Rights
* Legal equality (all get treated the same)
* Property rights
* Free Contract
* Voluntary exchange (decided what to buy and sell)
* Competition (multiple sellers)
* The purpose of free enterprsie is to get consumers to make economic choices
* How do companies know what to produce?
* Interest groups
Govt’s Role is
* Protecting Health, Safety, and Well-being
* Restrictions keep the consumers and the market safe
* Environmental restrictions on the disposal of hazardous materials
* Public Interest
* The concerns of the public as a whole
The Business Cycle
* A period of macro economic expansion followed by a period of contraction
*Government actions try to limit fluctuations

3 Ways to Stabilize:
1) Employment
nGovernment attempts to provide jobs
(the Great Depression and the TVA)
2) Growth
Increase the Gross Domestic Product (GDP)
Total value of all final goods and services produced in a particular economy n 3) Stable Prices
The government monitors and regulates certain institutions to attempt to keep prices stable
Governments can take actions to attempt to counter fluctuations
How Can We Increase Productivity?
Instill a higher Work Ethic
the commitment to the value of work and purposeful activity
Technology
Makes the process to produce a good or a service better
The government pushes for technological advancement because it eventually increases the national GDP.
PUBLIC GOODS
* shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers
Examples: Dams, Roads,
How are public goods funded?
Taxes
Yellowstone National Park
was created by the government
What does it cost to go there?
Little to nothing
Value
Not changed by multiple uses
*You can drive on a road thousands of others have used
Costs and Benefits
*Benefits must outweigh the costs in order for a public good to be created
* Why was the Grand Canyon Skywalk built by a Native America Tribe and not the government?
* Private Sector
* The part of the economy that involves the transactions of the government
* Public Goods are financed by the Public Sector
*Public Sector
*Part of the economy that involves transactions of individuals and businesses

* Free Rider
* Someone who wants to get the benefits of public goods without paying for a good or service
* EXAMPLE
* Building of a road privately funded
* Everyone wants it but a few people
* Result: Build the road
* Those who didn’t want it will use it and therefore become “Free riders”
Market Failures
* A situation in which the market does not distribute resources efficiently
* You cant just build roads where there are the most people because it neglects areas in need of transportation
EXTERNALITIES
* Economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume
* Can be both positive and negative
How the Government deals with Externalities
* Encourage positive externalities

Limit negative externalities via regulations and things like “pollution permits”
What do you think a pollution permit is?

The Poverty Problem
*Free markets
*result in uneven distribution of resources

*Poverty Threshold
* income level below what is needed to support a family or household
The GOVERNMENTS Role
* Provide a safety net
*Welfare – the US safety net of government aid for the poor
*Created following the Great Depression
* Positive: A safety net for the poor

*Negative: Some feel people become dependint upon welfare and are unable or unwilling to get off of assistance.
Government Redistribution Programs
*CASH TRANSFERS
* Direct payments of money to people eligible poor people
1. Temporary Assitance For Needy Families
2. Social Security
3. Unemployment Insurance
4. Workers Compensation
* IN-KIND BENEFITS
Goods and services provided for free or at greatly reduced prices
Food giveaways, food stamps, subsidized housing, legal aid

*MEDICAL BENEFITS
Medicare – people over 65
Medicaid – poor who are unemployed or not employer’s insurance
* EDUCATION
Government funding for basic and advanced education

* FAITH BASED INITIATIVES
Religious organizations can qualify for federal funding as of 2003 to help the poor